No Revision u/s 263 when assessment order was void and did not exist in law for not following procedure laid down by Supreme Court in GKN Drivesshaft
ABCAUS Case Law Citation:
ABCAUS 3049 (2019) (07) ITAT
Important Case Laws Cited/relied upon by the parties:
CIT Vs. VSNL (2012) 340 ITR 66
GKN Drives Shaft (259 ITR 19 (SC))
Manisha Construction Co. Vs. CIT
Keshab Narayan Banerjee Vs. CIT
CIT Vs. Fomento Resorts and Hotels Ltd.
The issue raised in the instant appeal was against exercise of jurisdiction by the Commissioner of Income Tax under section 263 of the Income Tax Act, 1961 (the Act).
The assessment in the case of the assessee was completed under section 143(3) of the Act after making additions to the returned income.
Subsequently, during a search and seizure action u/s 132 of the Act carried out in the case of a other assessee, certain incriminating documents were found which suggested that the company had given accommodation entries for inflation of the expenses to its clients and the assessee was one of the beneficiary of such entries.
Consequently reasons were recorded for reopening the assessment under section 147 of the Act and notice under section 148 of the Act was issued.
The assessee did not initially respond to the notice issued by the Assessing Officer but on a later date, it was pointed out that due to certain reasons the return of income in response to notice under section 148 could not be filed. However, the assessee asked for the reasons recorded for reopening the assessment.
The assessee was made aware that unless return of income is filed in response to notice under section 148 of the Act, it could not ask the reasons for issue of the said notice. The assessee in response furnished the return of income declaring income at Nil.
The Assessing Officer observed that since the assessee was made aware of the reasons recorded for issue of notice under section 148 of the Act and the assessee also made submissions on the issue involved; it was considered that the requisites of natural justice and opportunity have been complied. Thereafter, the assessment was completed under section 143(3) r.w.s. 147 of the Act.
However, The Commissioner, on verification of the case record noted that the assessee had insisted for supply of reasons for reopening the assessment in response to the notice issued under section 148.
The Commissioner observed that the assessee had objected that he was not in receipt of reasons recorded u/s 148. On verification of the record, no such communication or order sheet noting was found on record.
The CIT opined that in view of decision of the Hon’ble Supreme Court and the High Court the reasons should have been supplied and the objections of the assessee should have been dealt with by a separate order before passing the assessment order u/s 143(3) read with sec.147.
In view of the same, the Commissioner held that lacuna had occurred while finalizing the assessment and failure on the part of the Assessing Officer to pass a speaking order dealing with the objections of the assessee to the re opening proceedings was required.
After considering the objections of the assessee, the Commissioner held that the re-assessment order passed was not legally sustainable and was liable to be quashed. Hence, it became necessary to annul it under section 263 of the Act and order for re-framing of the assessment order.
Therefore, by invoking the provisions of section 263 of the Act, the CIT directed the Assessing Officer to make proper enquiries and confront the assessee with evidence and then redo the assessment after following the proper procedure as laid down in series of decisions.
The Tribunal observed that the Assessing Officer had not followed the said procedure but had disposed of the objections raised by the assessee against the reasons recorded for reopening the assessment, in the assessment order itself. Such inaction of the Assessing Officer made the assessment order void and not sustainable in law.
The Tribunal pointed out that when the assessment order was void and did not exist in law, the question was whether the Commissioner could exercise his revisionary jurisdiction under section 263 of the Act against the same?
Replying in negative, the Tribunal stated that Commissioner can exercise the jurisdiction under section 263 of the Act where the assessment order is live. In case the order is void, then the same cannot be held to be erroneous and prejudicial to the interest of revenue.
The Tribunal did not find merit in the exercise of jurisdiction by the Commissioner where he himself admitted that the assessment order was void.
The Tribunal noted that the Hon’ble Calcutta High Court in similar situation of exercise of power by the Commissioner under section 263 of the Act against the order passed under section 147 of the Act, wherein the condition precedent of service of notice was not fulfilled, held that such orders were bad in law and therefore, the proceedings under section 263 of the Act, admittedly, originating from such orders could not be initiated against the appellants.
Further, it was noted that the Coordinate Bench of the Tribunal in similar situation of exercise of jurisdiction by the Commissioner under section 263 of the Act had held that in a case where while initiating the penalty proceedings for concealment observed that where from the assessment order was not clear as to which limb of section 271(1)(c) of the Act had not been fulfilled by the assessee, then the said order suffered from infirmity. It was further held that the Commissioner could not exercise his jurisdiction under section 263 of the Act in respect of such null and void assessment order.
Accordingly, the Tribunal held that in the present set of facts where the Commissioner himself had given a finding that since, the copy of reasons recorded for re-opening of the assessment were not furnished to assessee till date of completion of assessment, the order of the AO was void, then revisionary jurisdiction could not be exercised against such order.
When the said order is void and did not stand in law, it could not be held to be erroneous and prejudicial to the interest of revenue by the Commissioner. Consequently, the exercise of jurisdiction under section 263 of the Act was not justified and is bad in law.